Workers’ compensation 101: A guide for small business owners

In case you missed it, here’s a recap of our discussion on workers’ compensation with Matt Zender, Vice President of Underwriting at AmTrust Financial. Watch the video below for the full webinar.

Every single business has a responsibility to protect a business’ most important asset, their employees. One of the most obvious ways to offer that protection is through workers’ compensation insurance.

The general rule of thumb across most states is - if you have employees, you need to have coverage.

But from who? And how much should you pay?

Forty-six of the 50 states in the U.S. are what is referred to as a competitive market. So, for example, California has dozens of insurance carriers that could write your policy. But in the states of Ohio, Wyoming, North Dakota and Washington, each of those states have only one carrier that is run by its state government. In those states, because there is only one carrier it is considered monopolistic.

Depending on what state you’re in, there are a couple of things to consider:

If you’re doing business in multiple states, you may or may not need workers’ compensation in those additional states. If comes down to a number of factors, including the state of residence. If they are just visiting a state, even semi-routinely, they may not need coverage in that state.

If you’re employing family or part-time workers, you will need to look into your state’s requirements. For family employees, they might not need coverage if they have an ownership stake in the business.

On average, due to competition, private carrier rates tend to be lower than those provided by a state fund. But a huge portion as it relates to all other business in your particular class code (as roughly determined by losses divided by payroll).

There are hundreds of classifications that exist, so if your business is being incorrectly classified, you could be paying too much. For instance, there are a dozen different class codes for the automotive service industry, so your rate will vary depending on whether you’re in auto service repair versus auto body versus auto dismantling.

The underwriter also looks at your historical loss history, the claims you’ve had and the amount of payroll you have - which are all applied to the rating algorithm, either moving your premium up or down.

If you’re a small business owner, every dollar counts. Here are four tips to help you lower your cost.

Tell the right story for your business.The underwriter who is quoting your business is probably having to evaluate dozens of other business the same day. You want to make sure that when they’re opening up your submission, they know what’s special about your company because every small business owner has done something unique, different and special.

Ask yourself: what separates you from your competition? What’s better about your business than the one down the street? What keeps you up at night? What have you done to address those concerns? If you’re able to communicate that story in an accurate, succinct manner, it’ll absolutely make a difference when the underwriter is looking at that submission.

Explore technology and tools that make everyday activities easier to complete for your workers.There are different devices and tools to help your business operate more safely – whether it’s as simple as a lifting mechanism for a housekeeper working in a hotel to get that extra little leverage to help pull the mattress up.

Ask your carrier for all available credits applicable to you.Some state sponsored programs offer credits to reduce your workers’ comp premium, others will offer drug-free credits and a few will offer safety credits if you’re able to show that you can work within a certain parameter.

Always think safety-first.Run your company with a safety-first perspective. For example, if a potential candidate has an opportunity to work for a couple of different businesses and they know your company has a reputation for taking great care of the employees, he or she may be more inclined to work for you rather than the other business down the street. In turn, this could positively impact your ability to hire because word spreads. It saves you dollars, but it also earns you dollars.

Workers’ compensation coverage is considered “no-fault,” meaning as long as your employee was injured while working for you, they will almost always receive coverage. There are very few exceptions. In exchange for this “no-fault” system, the employees cannot sue their employer in a tort-system. This is considered the Grand Bargain. There are a few instances where an employee can sue an employer, i.e. if the employer were to intentionally remove the safety guard on a machine that was designed to protect the employee. In that case, employers’ liability coverage will provide coverage.